Another plunge in the price of crude oil sent stocks sharply lower on Thursday, bringing the market to its lowest level in nearly two years.
Energy companies were pummeled as the price of crude oil sank 7 per cent, threatening more damage to an industry that has already been stricken with bankruptcies, layoffs and other cutbacks.
The price of US crude fell below $27 a barrel amid a global glut in oil supplies that seems to be getting worse. That's the lowest price since May 2003 and a far cry from the $100 a barrel it fetched in the summer of 2014.
Overseas markets fared no better. Japan's Nikkei index entered a bear market, down 20 per cent from its peak in June, and European benchmarks lost between 3 and 4 per cent. Gold and US government bonds, traditional safe havens, rose in value as investors shifted money out of stocks.
The Dow Jones industrial average lost 377 points, or 2.4 per cent, to 15,639 as of 1:55 pm local time. It was down as much as 565 points earlier. The Standard & Poor's 500 index fell 39 points, or 2.1 per cent, to 1,842. The Nasdaq composite index sank 54 points, or 1.2 per cent, to 4,423.
The Dow and S&P 500 are down 10 per cent so far in January; the Nasdaq is down 12 per cent. The losses were widespread; all 10 of the S&P 500's industrial sectors were in the red.
Oil prices had already fallen to 12-year lows this week, and the price of US crude has dropped 29 per cent so far this year. Benchmark US crude gave up $2.09, or 7.3 per cent, to $26.37 a barrel in New York.
Brent crude, a benchmark for international oils, lost $1.12, or 3.9 per cent, to $27.64 barrel in London. Heating oil prices also sank 5 per cent to 86 cents a gallon.
James Liu, global market strategist for JPMorgan Funds, said the global economy remains relatively healthy and demand for oil hasn't fallen off. But production is too high, so tremendous stockpiles have accumulated. While companies started shutting down drilling rigs in late 2014 after prices started to decline, production of oil didn't change much.
"We're starting to see production declines basically two years after rig count started to decline," Liu said. He said production will keep falling and oil prices will stabilise in the middle of 2016, then start rising.
Energy stocks were pelted. Devon Energy lost $2.36, or 10.1 per cent, to $21.12 and Murphy Oil fell $1.20, or 7.3 per cent, to $15.18. Chevron sank $4.42, or 5.4 per cent, to $77.09, the biggest loss in the Dow average.
Financial stocks were also getting hit because banks could lose billions on loans to oil and gas companies. Bank of America lost 69 cents, or 4.8 per cent, to $13.55.